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4/30/2009
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5 Tips For Avoiding Litigation In A Recession

With cash tight the last thing your business needs right now is a lawsuit. But the inevitable collection difficulties that come with a recession increase the likelihood of a business dispute. Here's 5 tips to help your business steer clear of litigation and handle it effectively if it does happen to you.

With cash tight the last thing your business needs right now is a lawsuit. But the inevitable collection difficulties that come with a recession increase the likelihood of a business dispute. Here's 5 tips to help your business steer clear of litigation and handle it effectively if it does happen to you.Not only does the difficulty of collections increase in a recession, but legal claims holding other parties responsible for losses also spike. And the specter of a lawsuit comes at a time when no company can afford drawn out legal proceedings, sky-high attorney fees, and the possibility of a judgment going against it.

Despite these increased risks, attorney Gail Prentiss, a partner at Vanderpool, Frostick and Nishanian, a law firm in Manassas, Va., says that a recession can work in your favor when it comes to legal action as well. "The economic downturn can present a unique opportunity for settlement of legal disputes as people become more concerned about the cost and risk of contested litigation," she says. "Times of economic uncertainty often create a more favorable climate for skilled negotiation and compromise, because both sides are more inclined to value the security and finality of a known result and people are generally more satisfied with an agreed resolution than with a decision imposed upon them by a court."

Prentiss goes a step further and offers business owners these five tips to keep if you do find your company facing litigation in this, or any other, economic downturn:

  1. Be Proactive -- Whether you are the debtor or the creditor, if non-payment issues arise, initiate communication and address them promptly. Do not allow the problem to continue to grow. Large problems are far more difficult to resolve than small ones.
  2. Consider Alternatives Which Improve Your Position -- In an economic downturn, creative resolutions may be necessary, but can also provide an opportunity to improve your position. If you are owed money, for example, such resolutions may include a note secured by property, a payment plan with agreed provisions for interest and attorneys fees, or for a judgment in the event of default. If you are the debtor, a work-out could provide for more affordable installment payments and discount incentives for early payoff. This is also a prime opportunity to clearly document any agreements that are not in writing.
  3. Evaluate Filing Suit -- In certain situations, filing suit is necessary. The law provides deadlines for filing different types of claims, which will be denied if not filed in time. Additionally, as a practical matter, a lawsuit may be required to bring uncooperative parties to the table. In the case of an unreasonable party or highly emotional issues, motions and other pre-trial options such as mediation, settlement conferences, or neutral case evaluations can often lead to resolution.
  4. Consider Whether The Benefit Of Voluntary Action Outweighs The Cost Of Collection -- Obtaining a judgment is different than collecting one. A judgment is a court order deciding the merits of the case and the relief to which a party is entitled. If a monetary judgment is not voluntarily paid, enforcement procedures must be initiated and pursued by the judgment creditor. Additionally, appeal rights might delay collection of a judgment. In an economic downturn, the advantage of prompt voluntary payment may provide both an incentive to the plaintiff and leverage to the defendant in negotiating a potential discount or compromise. If the matter cannot be resolved, seek help from an attorney familiar with enforcement options and procedures.
  5. Invest In Prevention -- Prevention is generally much less costly. In an economic downturn, many people try to save money by "doing it themselves." Litigation often arises from differing expectations and from the use of the Internet or other "cut and paste forms" that do not fit the particular situation or conform to applicable law. Consider investing once to create documents favorable to your business. Many documents, such as service contracts, notices, or mechanic's lien waivers, can be tailored to protect your interest and standardized for repeated use. Professional drafting and/or review of documents stating relationships and obligations can minimize the risk of time-consuming and costly litigation in the future.

Don't Miss More Recession Tips In The bMightyFinancial Crisis Survival Kit

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